Taylor Legal Blog

A Shareholder Agreement — What Is It and Do I Need One?

Posted by Katherine L. Taylor, Attorney and CPAJun 01, 20220 Comments

{3 minutes to read}  Are you a shareholder of a corporation, wondering what a shareholder agreement is and whether you need one?  This article briefly answers those questions.

What is a shareholder agreement?

Unlike the bylaws of the corporation, which set forth the responsibilities of the shareholders, directors, and officers to the corporation, the shareholder agreement is a contract by and among the shareholders themselves.

Why would there be a shareholder agreement in any situation?

The shareholders of a corporation need an agreement to set forth what happens to the stock in the event of certain happenings. What happens if one of the shareholders wants out or wants to transfer their stock? What if one of them dies or becomes incapacitated? What if one of them divorces? What if they're an employee, and also a shareholder? All of those factors can go into a shareholder agreement, which, again, is a contract by and among the shareholders themselves. 

Do you need one for your corporation?

If the corporation is a solely owned company, you only have one shareholder and most likely don't need a shareholder agreement. There are some exceptions to that, which I will not take the time to go through here. However, if you have two or more shareholders, you should have a shareholder agreement, even if the shareholders are spouses, best friends, or relatives. Why? Because the shareholder agreement will set forth what happens if or when there is a disagreement. 

What happens if one of those people cannot speak for themselves? 

Even though you have a great relationship with your co-shareholder, the shareholder agreement allows you to put into writing all of those things that you think could happen someday but hope they don't. If they do, however, you've already put the steps you want to have taken in writing for anybody to be able to refer to.

If you have any questions about a shareholder agreement and whether you need one, please contact our office at www.taylorlegal.com

KATHERINE L. TAYLOR, ATTORNEY AND CPA

5850 Waterloo Rd

Suite 140

Columbia, MD21045

443-420-4075

443-420-4075 (fax)